Are we preparing for a new normal? That was the phrase that was used to explain the aftermath of the Great Recession, the Great Depression, and other worldwide crises.

The traumatic hit the world has been taking from the coronavirus may result in changes that challenge our view of normal.

For example, American consumer confidence, an indicator that has predicted recessions and political turnovers in Congress and the White House, experienced the single largest drop in more than two years during the middle of March before we started experiencing the worse of the coronavirus pandemic. As the virus continues to spike into April, things are expected to get worse.

In March Americans started to consider the virus more of a threat personally than just a threat to the nation’s economy. A “C” change when it comes to how we personally respond. If it’s no threat to kill us, that’s one thing, but if it’s a great threat to kill us, that’s another.

As a result, consumers at all income levels have lost confidence. The result could be a hit to all consumer-facing businesses for the immediate future. And companies based on business-to-business should also feel the pain. 

The confidence of the highest end of the economy has declined more rapidly than the middle and lower-levels. Leading economic forecasters to predict a major hit to the luxury sector.

Since China was the first to experience the worst of the scourge and is one of the first countries to recover enough to start re-opening some businesses, there is already a trend that it will be the luxury market to be hit the hardest. That doesn’t bode well for the United States, the world’s largest luxury market.

According to the powers to be in the luxury industry, this section of the economy could witness a loss of between €30 billion to €40 billion in sales. 

People are feeling anxious and insecure to a greater extent than they have since the Great Recession of 2008-2009. But the coronavirus crisis is worst because people’s physical wellbeing has been shaken. It’s the worst since World War II or 9/11. 

It’s expected that the luxury segment of the economy will comeback as it did after World War II, 9/11 and the Great Recession. But it is believed that their buying habits will be more for identity building and identity-reinforcing. The activity of buying will in itself will supplant the far with a sense of comfort and security.

Banks, Governments Struggle To
Keep Economies Running

As the unemployment rate is forced to climb, some, including the president of the Federal Reserve Bank in St. Louis, James Bullard, are warning that U.S. unemployment could reach 30 percent in the foreseeable future.

If true, then the jobless rate would be worse than it was during the Great Depression. Three times worse than the Great Recession in 2008-2009. Moreover, he also suspects that the nation’s gross domestic product will plummet an unparalleled 50 percent.

The United Nations Conference on Trade and Development cautioned that there could be a global economic slowdown of nearly 2 percent in 2020, wiping away $1 trillion from the world economy.

The Asian Development Bank cautioned on April 3 that the cost to the worldwide economy of the coronavirus pandemic could reach $4.1 trillion. That figure could be worse or better depending on how the virus spreads through Europe, the United States and other countries. 

Since China is the world’s second largest economy and it was ground zero of the coronavirus pandemic, economists believe how China recovers could be a sign of what the rest of the world should expect. 

Reuters polled the world’s economist from March 3-5. What they found was a belief that the virus will cause China’s economic growth to drop by half in the first quarter of 2020 compared to the fourth quarter of 2019.

The survey shows that economists suspect that the Chinese economy will take another hit due to a reduction of global demand of its products as the coronavirus outbreak continues to sweep the globe. 

China’s factory production tumbled at the sharpest rate in three decades just in the first two months of 2020.

Governments have been forced into radical fiscal policy to battle the virus’ economic impact from becoming worse. For example, the UK took on the payment of up to 80 percent of the wages of workers who couldn’t work due to societal lockdown. 

Denmark said it would assist private businesses that are struggling through the ramifications of the virus and supplement 75 percent of employees’ salaries to encourage those businesses not to layoff their workers. 

The United States Congress passed a stimulus package that would inject $2 trillion into the economy in the form of direct payouts to millions of workers. Unemployment compensation was boosted and workers will receive an influx of $1200 to help them get through the pandemic as they work from home. It is expected that several more stimulus packages will need to be passed by Congress as the pandemic plays out. 

To further help stimulate the economy, the U.S. Federal Reserve has cut the interest rate to 0.5 percent. But the action doesn’t appear to be working. And since the interest rate is now in the zero-lower bound, there’s not much more that Fed can do if there’s an additional need for an emergency response.

The result of all this action by the federal government is a raise of the debt and Investors could worry if the debt will be paid.

Banks are in decent shape at this moment to survive because they are required to have more capital on hand. They have also invested strongly in so-called Coco Bonds that help sustain their balance sheets during this crisis

However, if the banks restraint policy fails, then they may stop lending causing the asset bubble to bust resulting in a long-term recession. 

We are already seeing governments and central banks trying to assist more, but in the U.S. at least, there’s not much more the Fed can do with interest rates. Due to the limited success in any new stimulus, the economy could stall in the long term. As a result, central banks could lose management of the marketplace. If this should occur, then we are in uncharted waters.

Frank Mustafa, president of Greyson Global, Inc., an analyst firm that focuses on business-to-business companies, asserts that when people start getting their stimulus checks from the government, and businesses receive funding to assist them to handle the trillions of dollars used to bailout their workers, and if the coronavirus takes a downturn in the next few months, then we still may see hyper inflation. 

On the other hand, says Mustafa, if there is a bear market rally and people shed their long position stocks, we could fall into a 5-10-year depression.

Societal Changes As A Result Of The
Coronavirus

As we now hunker down alone or with our families, we may become more comfortable with unattachment and be less inclined to do things in person. There could be more of a dependence on the Internet to communicate. People who don’t have access to broadband could be disadvantaged.

Doctors, nurses, pharmacists, caregivers, grocery store clerks, utility workers, and others who are now manning the frontlines in the battle against coronavirus may join members of the armed forces and be recognized as true patriots. 

The coronavirus pandemic has forced the world population to remain at home as a means of reducing its effect. As a result, we’ve seen an uptick of streaming of live events to provide entertainment for the shuttered.

As the virus fades and finally disappears, no doubt live events will return. But there will be a large segment of the public that would prefer to stay at home and watch large live events via streaming rather than attend them in person. Streaming movies at home, already a popular alternative will become even more popular.

Telecommuting that allows us to work at home during the pandemic will remain as a major tool of business to assure less contact between employees that could cause the rise of another pandemic, but also a way for businesses to keep costs down. Businesses will learn that a workforce working from home means there is no need to lease large office space, reduces the long commute, and allows for flexible hours. Companies will be able to hire a geographically diverse workforce without wondering where to house them and won’t have to force others to relocate. 

A major part of social distancing was implemented with school closings. To make sure that the children who stayed at home would continue to learn, there was an uptick of children educational content over the Internet. This will continue even after children return to the classroom.

Colleges also shuttered during the pandemic, but students continued their education through online learning programs. Letting students learn at home allows more of them to take the same classes simultaneously. And students who missed a lecture will have the opportunity to see it via video streaming.

The greater use of the Internet will force governments to enhance the infrastructure so that more can enjoy its benefits. 

As there is less of a need for a workforce to commute to work and as there is the reduction of non-essential economic activity, we’ll achieve successes in reducing climate change.

A consequence of the coronavirus pandemic and the attempts to reduce its effects by staying at home also resulted in the decline of carbon emissions. In fact, carbon dioxide emissions fell more than at any other time since World War II.

If we eliminate non-essential jobs and allow more people to work from home, then there may be a chance that the trend of less carbon emissions can become permanent.

The coronavirus pandemic has been a catastrophe that will kill many and fiercely affect the lives of all of the survivors. But, if we also make it a learning moment, then there could be beneficial changes in store that will enrich the planet and those of us who live on it.